It is shocking how individuals are careless about social insurance policies. Instead, individuals rather get more money in their paycheck. Definitely, the new government will need to create an economic policy which pushes the informal sector to the formal sector of the economy.

Can one write this type of article about Mexico and not explicitly discuss the size and contribution of the drug cartels and all they employ? Is that subsumed under the informal sector? Sorry, I agree with the commentator who said this is more than a bit naive. Come on Dani; under the window dressing here of the modern sector, Mexico is a failed state.

Where in the text do you present evidence supporting the claim that “efficiency minded reforms have been offset by factors – social insurance policies and market imperfections”? It is simply not possible to take a “broad lesson” that social insurance lowers productivity from what is just your opinion, or a “possible explanation”. It might be an interesting claim, but you should present some evidence of it.

Can someone elaborate on this?? Informal workers do not have pension and health benefits in Mexico. They do not have access to the IMSS. They have access to the Seguro Popular, wich is in no way similar to the health benefits of the formal workers on IMSS. And regarding pensions, they only have the non contributive pension, which is very poor, and again, not comparable with the one formal workers have.

What you mention about Seguro Popular, IMSS and the pensions is all true. The authors believe that Seguro Popular works as an incentive to the workers so they'll look for jobs in the informal sector. Some economists like Gerardo Esquivel seem to think that this is a major flaw in their hypothesis.

The figure of 1.5% productivity growth can only be as reliable as the data collection. Given the difficulty of measuring the informal sector, not reliable at all. The 115% growth in employment suggests a very large pool of under employment before Nafta came into effect. Productivity increases anyway follow the shortage and cost (+taxes) of workers. Mexico can draw on the workforces of poorer latin american countries. While that is the case, employers will have little incentive to invest in productivity.

Very interesting article but it lacks. However this is very understandable by the dangerous concentration of manifest power that the world lives. More than eight years ago, since the 2008 crisis was mentioned, and in relation to secular stagnation, a bloquer (tutifruti130) said that the cause of this phenomenon was largely the economic effect derived from the market distortion in the allocation Optimal combination of productive resources to carry out business activity. And that this distortion in turn was caused by exogenous factors within a speculative financial economy that in turn, negatively affected the pulse of the real economy. A market distortion, he said, affecting both the free play of supply and demand and the appropriate and necessary interactions of competing business units. And that what is indicated derives from unfair competition, and also produces harmful and consequent power games such as monopolies, oligopolies, etc. All under cover of a cathedral of corruption. And here come the paradoxes. Those who have tried to build a whole scaffold to defend business financial freedom at all costs, and the eradication of events similar to those that gave rise to the Second World War, it is possible, to confuse means and ends, on the way During and after the cold war. Today representative democracy is in danger because they have closed the instances for it, where the dictatorial manifestations prevail on the democratic attitudes, sadly, under the shelter of few and the fear of many. Likewise, business activity seems more generally in Europe, where for example small businesses are fully developed for human satisfaction and management, compared to others outside the European Union that are distorted by strictly related management The financial world. Equally, business management is there, more under the protection of the human being, and hence the difficulties of making bilateral treaties between the parties. It is not enough to mention in this context where the human being in entrepreneurial activity of free enterprise like the very high economic and social indexes that reach the Scandinavian countries, which are all an example to follow of what is capitalism with Responsibility and honesty of the management, and which leave in the gutter to all the others. As for other aspects Ceteris Paribus.

The aiuthor forget that those social transfers are necessary to stabilize the country. Without such benefit system Mexico nicht habe dritter towards a state like Venezuela. Cut those benefits and you end up in social turmoil. A lesson the Republican Party und er Trump is beginning to learn the hard way.
The trickledown effect is missing. If the losers of globalization exceed thosr of the winners the whole structural reform become counter productive. Overall productivity growth slows down even if in some areas it might accelerate. That's not a paradox, but simple logic. Another variant of Baumol's disease. The formal sector share declines while the informal sector share increases.

Perhaps the message for other poorer countries is to keep out the ILO, which typically tries to increase social protections, minimum wages and so on. The problem appears to be that there are insufficient benefits to being both formal and legal.

The progressive and continuous criminalization of Mexico is creating this ' paradox' , only the big multinationals or " informal small activities "can survive.
Real Estate, retail, banking, tourism and a service sectors are permeated by " black money" , most OECD banks are not allowing Mexican passports to open new accounts and Mexican banks are considered unreliable.
Mr. Levy knows in first hand this problems, not mention it and attacking an already faulty social security system is naive..to say it kindly.

There is another Mexican Paradox: if not for a few lucky oil discoveries around 1900, Mexico would likely have faded into oblivion long ago.

In essence, Mexico lacks the geographic characteristics to be a successful state. To develop infrastructure, Its topography demands high amounts of capital, but the amount of capital generated by that same topography is low.

Worse still, the limited amount of good land produces a political and economic system geared toward regional jefes (oligarchs). In short, but for one saving grace, Mexico would be anther Afghanistan.

That saving grace is being next to the United States. America's capital richness versus Mexico's capital poverty means that Mexican labor will always be both chap and underutilized, perennially attractive to anyone wanting to service America's nearly bottomless demand.

Couple Mexican labor with American shale gas to generate electricity, and Mexico is poised to be the fastest-growing economy in the world for the next generation.

I did not understand how the only finding you mention "Research by one of us (Levy) shows that informal firms have absorbed a growing share of the economy’s resources." leads to your second lesson, which was only a "possible explanation" with nothing to back it up. It looks like just speculation, and one could come with many other, rather different, possible explanations to be taken as a lesson.
Where am I missi

There is no paradox. Mexico had the misfortune to compete with China and lost because of a number of factors e.g
1) being perceived as a petro currency when oil prices were high
2) high electricity costs because of distortions and rent seeking. Telecom too is overpriced for an obvious reason.
3) poor access to credit for small firms thus preventing duality in the labour market from having a positive effect in terms of small disintegrated firms creating external economies of scale and scope.
4) distortions associated with remittances and perhaps crime

Mexico did not tackle certain institutionalised corrupt or distortionary practices for certain political reasons and is taxing the formal sector to subsidise the informal sector. However, Mexicans are not stupid. They did not try to use 'a ready made blue print'. They know their own political culture and history very well. Anyway, now Trump is in the White House, it is the gringos who can be more plausibly accused of stupidity.

You do not consider the effect of crime. At least by the amount of news coverage, drug-trade fueled crime seems to be rampant and rising, although I have not checked facts on this. But if true, crime scaring away investors seems like a pretty good story to me. It would keep "formal sector" companies out and force people into the "informal sector".

Mr. Friesen, I would be inclined to agree that crime has been a material economic negative in Mexico. Mexico has always had some crime. However, the liberalization policies that started back in the 1990s have greatly increased the power and influence of the criminals. Historically, Mexico's government was authoritarian. Criminals did not dare to challenge the power of the state. Since Mexico embraced liberalization, the power of the state has declined and the power of the cartels has risen. The fruits of liberalism are sometimes quite bitter.

There is much of this going on in Europe. The ageing demographic, the stubborn low inflation, etc etc. The difficulty in sparking growth, also youth unemployment concurrent with supposedly high employment in the UK. Real unemployment is perhaps 4x the official figures. In short figures are not believable and therefore econ models are not believable
http://uk.businessinsider.com/the-lie-behind-the-unemployment-numbers-2017-7

The point here is that when you build a Bike you built it to go foward. And just as the asticle says... Mexico has to build the policies taking in acount the global panorama and the particular objectives of the country. You should read the Japan case and "one" of the futures if the theory stays the same. https://www.bloomberg.com/view/articles/2017-08-03/japan-buries-our-most-cherished-economic-ideas
https://www.economist.com/news/leaders/21702751-what-japans-economic-experiment-can-teach-rest-world-overhyped-underappreciated
https://www.economist.com/news/asia/21716584-there-obvious-solution-asias-looming-labour-shortage

There really is no Mexican Paradox... If you are willing to consider non-PC facts... Mexico has some of the lowest skill levels in the world. Years of education don't matter. Actual education does. See "Mexican students not at top of the class -
PISA tests rank them at the bottom of the OECD list of countries" in the Mexico News Daily. Also see "2015 PISA AVERAGE SCORES" in "BUSINESS INSIDER". Mexico is down there with Argentina and Qatar.

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